South Korean pension funds and mutual aid associations are investing in offshore private debt funds (PDFs) as the Covid-19 crisis makes it difficult to perform due diligence on potential targets, the Yonhap Infomax reported on Tuesday (August 25).
Leading pension funds and mutual aid associations have committed more than 10 million dollars to the 12th fund of Golub Capital, according to reports in financial investment circles. Public Officials Benefit Association (POBA), Military Mutual Aid Association (MMAA), Korean Federation of Community Cooperatives and Yellow Umbrella Mutual Aid will each invest around $40 million. The fund targets middle-sized overseas companies that are worth between $10 million and $100 million, based on their annual earnings before interest, taxes, depreciation and amortization.
“Funds to be invested in overseas alternative assets like real estate and infrastructure are tied up as Covid-19 has blocked overseas due diligence,” an investment manager at a mutual aid association said. “We are increasing PD investments to counter this situation.” The investment manager added that the expected annual profit of 5-6% was attractive as it was higher than bond interest rates, which are near zero.
POBA last year allocated a total of $250 million to an overseas PDF company focusing on North America and the Asia-Pacific region. Teacher’s Pension assigned a combined $250 million to four PDFs targeting North America.
National Pension Service’s plans to diversify its investment strategy by tapping into the private debt market are also encouraging other pension funds and mutual aid associations to consider a similar approach. (Reporting by Hyewon Chang)